A UK tribunal has ruled that insurance brokers in the UK can reclaim VAT on services provided to Gibraltar-based insurers, a decision that could have significant implications for Gibraltar’s financial sector.
The case involved Hastings Insurance Services Ltd, a UK-based broker that provides services to Advantage Insurance, a Gibraltar-based insurer.
Under both EU and UK law, insurance transactions are exempt from VAT. However, Article 169(c) of the EU Principal VAT Directive allows for VAT recovery when services are supplied to a customer outside the EU. The UK implemented this provision through the Specified Supplies Order 1999.
In 2019, the UK amended this order to prevent insurance intermediaries from reclaiming VAT if the insured party was based in the UK. This amendment, known as the Offshore Looping Regulations, required intermediaries to determine the location of the insured party rather than the insurer when applying VAT exemptions.
In April 2023, Hastings submitted a VAT reclaim for services provided before and after Brexit. HM Revenue & Customs (HMRC) rejected the claim, arguing that the true customer was the insured party in the UK rather than the Gibraltar-based insurer.
The First Tier Tribunal ruled in favour of Hastings. It determined that the term ‘customer’ in Article 169(c) refers only to Hastings' direct customer, the non-UK insurer, rather than the UK policyholder.
The tribunal also confirmed that Hastings could rely on Article 169(c) before Brexit, as EU law allowed VAT reclaims in such cases. It also found that, under the EU (Withdrawal) Act 2018, rights recognised under EU law before December 31, 2020, remained enforceable in the UK if they had been upheld in prior court decisions.
Commenting on the decision, Robin Prince, VAT partner at UK accountants and advisers MHA, said that the tribunal’s ruling in favour of Hastings has broader implications for insurance intermediaries that have faced restrictions on input tax recovery due to the Offshore Looping Regulations.
“The tribunal’s conclusion that Article 169(c) PVD has direct effect, even post-Brexit, limits HMRC’s ability to restrict input tax recovery in similar situations and could lead to other taxpayers making claims for refunds,” he said.
“The sum available for refunds will depend on each individual insurance company's tax circumstances, but Hastings cited £16 million as at stake for the last four years. HMRC’s impact assessment from when they introduced the legislation in 2018 estimated the tax at stake to be between £65 million and £100 million per year, or £250 million to £400 million for the period,” Prince added.
HMRC is expected to appeal the decision.
